Brands and retailers team up to offer 0% EMI schemes

Under the new arrangement, retailers and manufacturers will share the interest cost on such offers that were earlier taken on by banks and brands.

KOLKATA: Zero percent EMI schemes are back. Not that they'd gone away altogether, but offers had dwindled as banks got cold feet after the Reserve Bank of India frowned upon the practice because it seemed to be a way of concealing charges. However, with customers staying away, retailers are entering into business arrangements with brands to draw them back to showrooms, bypassing the banks.

Under the new arrangement, retailers and manufacturers will share the interest cost on such offers that were earlier taken on by banks and brands. All such offers will be on the (lower) market operating price and not the maximum retail price (MRP) as it often used to be earlier, another grey area that the central bank had pointed out in September last year.

The country's largest cellphone retail chain, Essar Group-owned The Mobile Store, launched a zero percent scheme 10 days ago in partnership with Samsung, Sony and Nokia on smartphones bought through credit cards.

Other chains such as Next Retail, PlanetM Retail and Future Group said they are in the process of launching such schemes, while Tata-owned Croma and Reliance Digital said they would be evaluating such programmes. Sony has re-launched a scheme for its televisions, but it's taking on all of the interest cost.

The Mobile Store CEO Himanshu Chakrawarti said there has been a sudden pickup in sales, up 30-35% in the last seven days, through the plan. "Sales are at par with Diwali. A bridge such as interest-free EMI (equated monthly installment) was required and hence we re-launched the zero EMI offer across all brands and banks," he said.

Before the RBI notification, zero percent EMI plans accounted for 20-30% of sales of electronic products such as mobile phones, laptops, tablets, LED televisions and home appliances.

Banks withdrew the credit card schemes in October and started to focus on consumer goods loans, but this failed to pick up the slack as the formalities were cumbersome and interest rates were high. Also, consumer demand has been slack since Diwali with just an occasional bump on special sale days.

Videocon-group owned cellphone chain PlanetM Retail CEO Sanjay Karwa said the retailer will launch its zero percent scheme by April. "We have got a positive sign from the brands who would share the interest burden and are talking to NBFCs (non-banking finance companies) so that the EMI scheme can also be availed of by those who don't have credit cards," he said.

A senior Sony India official said the company's scheme has been launched with NBFCs without any processing fees. "Post the RBI diktat when we re-launched the scheme, we strictly informed our trade partners that they won't charge anything extra and offer it on the market price to comply with the advisory," he said, requesting anonymity.

RBI said last year that the schemes "only serve the purpose of (luring) and exploiting vulnerable customers."

The central bank had said the interest component was being camouflaged and passed on to consumers in the form of a processing fee. Besides this, such loans were mostly on MRP, which was always higher than the actual market price.

RBI mandated banks to offer loans on the market price of the product and be open about interest costs and the final price mechanism. The new zero interest schemes will ensure transparency with the credit card statement of the consumer showing how brands and retailers have subsidised the interest cost.

Ajit Joshi, chief executive officer and MD at Infiniti Retail, which owns the Croma chain of stores, said the company would seek legal opinion before re-launching zero percent EMI schemes.

"Of course, such a scheme would help to boost demand of premium products but we would evaluate it thoroughly before re-launching it," Joshi said.

A senior Reliance Retail official said that the company would be interested in re-launching such schemes now that the brands were picking up the interest cost.